Teacher Retirement Underfunded
Teacher retirement benefits known as Other Post Employment Benefits (OPEB) are currently only 20 percent funded with $635 million in unfunded liabilities, according to the new accounting standards presented by Bolton Partners, Inc., consultant actuaries to Frederick County Public Schools. The update shows the true cost of estimated OPEB balloons from $2,300 per teacher in 2018 to $9,402 per teacher by 2048. Actuary Kevin Binder with Bolton Partners and Leslie Pellegrino, FCPS chief financial officer, presented the OPEB update to the BOE at a meeting on November 29.
The report shows assets of $92.8 million and unfunded (actuarial accrued) liabilities of $727.6 million, presented in a reconciliation of current and previous valuations. The itemized comparison shows a decrease in liabilities allocated to demographics, claims and an applied discount rate, but these decreases are more than offset by an additional $60 million in liabilities for longer life expectancy and more than $24 million in estimated medical expenses when taking into account the new accounting standards.
FCPS made recommended OPEB contributions of $14.3 million in 2012 and 2013, but only $3 million in 2014 and 2015, and $1 million in 2016. A budgetary decision was made to reallocate funds to pay for increases in teacher salaries. Also, a recalculation using the new accounting standards shows a more realistic contribution would have been $26.3 million. The 2017 trust fund contribution was $9.7 million with $1 million in cash, plus $3.4 million in Federal Reimbursement for a total of $14.1 million. This situation is not unusual. Binder describes FCPS as being “in the middle of the pack” when it comes to OPEB funding.
“New reporting standards make these liabilities quite evident,” Ms. Pellegrino says. “With increased awareness, the Board can become pro-active in taking steps to mitigate this situation.” She suggested taking a comprehensive look at multiple funding scenarios in order to develop a mitigation plan. She says she will be meeting with a sub-committee of the Insurance Council, consultants and management over the next year. The goal is to impact the 2020 FCPS budget.
“Since joining the Board, I have been committed to funding these benefits,” reports BOE president, Brad Young. Board member, Dr. April Miller echoed his commitment, adding: “We need to be able to deliver on our promises.”
